Japan still can't generate inflation

A pedestrian looks at an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo Thomson Reuters

Japan is still struggling to generate inflation three years into its extraordinary policy assault on low growth and deflation.

Consumer prices remained flat in February, while annual inflation rose by 0.3pc - still a far cry from the Bank of Japan's official 2pc inflation target . Core inflation - which excludes fresh food and energy - rose by 1.1pc last month, unchanged from February.

Standing on the brink of its sixth recession in just seven years, Japan's sluggish economy contracted by a bigger than expected 0.4pc in the last quarter of 2015.

Persistently low inflation has long been a scourge of the central bank, which unleashed the most ambitious set of monetary policy measures ever seen in a modern economy to lift Japan out of its malaise.

The Bank of Japan is purchasing 80 trillion yen in government bonds a year and has sent its main interest rate to -0.1pc to stimulate growth and lending in the world's third largest economy.

Prime minister Shinzo Abe has urged businesses to lift wages for Japanese workers in a bid to get inflation to its 2pc target by the end of the year. This ambitious aim has been held up by Bank of Japan governor Haruhiko Kuroda, but is now set to be revised down after last month's inflation numbers, said analysts.

The central bank refrained from any further interest rate cuts this month, having ventured into negative territory in January - a move which sent shockwaves across global markets over fears monetary policy was hitting its limits.

Negative rates have also failed to weak the yen which has risen by 7pc against the dollar since the negative rates move at the end of January. An appreciating currency further dampens inflationary pressures in an economy.

"The Bank of Japan is falling into a vicious cycle in which it remains under pressure for further easing even as it has few effective policy means available," said Koya Miyamae, economist at SMBC Nikko Securities.

This article was written by Mehreen Khan from The Daily Telegraph and was legally licensed through the NewsCred publisher network.